Exar to Acquire Integrated Memory Logic for $223M

BROOKLYN, N.Y. — Exar Corp. took another step to advance its analog diversification strategy with a $223 million proposed deal to acquire Integrated Memory Logic Ltd. (iML), a fabless semiconductor company that provides power-management chips aimed at the flat-panel display market.

iML’s analog and power management chip portfolio includes DC/DC converters, gamma and VCOM buffers, level shifters, digital variable resistors, and WLED backlight drivers, which are all optimized for LCD panel applications in LED televisions and high-resolution tablets. Exar supplies power management chips, as well as a wide variety of interface and analog and mixed-signal ICs targeted at the industrial and communications sectors.

In addition to enhancing its product portfolio, the deal will boost Exar’s presence in Korea, Taiwan, Japan, and China, countries where most of iML’s customers are based, according to Louis DiNardo, Exar’s president and chief executive, in a statement.

“Additionally, iML has demonstrated consistent profitability and gross margins that reflect the value of the company's differentiated products," DiNardo added.

According to Stifel Nicolaus analyst, Tore Svanberg, iML has been very profitable, generating gross profit margins of 52.7%, which are higher than typical discrete suppliers, as well as operating margins of 22% last year. Svanberg attributed the robust gross margin base to iML’s highly integrated power management chips, adding that iML believes that it can chalk up 20% growth “over time” by increasing its market share. iML, which recorded revenue of nearly $67 million in 2013, is banking on two key drivers for the TV market: 4k Ultra HD displays and Open Cell, a trend in which TV OEMs in Korea and Japan are outsourcing LCD panel assembly to Chinese companies, according to Svanberg’s written report.

Although analysts said that Exar would benefit from the deal, which is expected to close in the second quarter of fiscal 2015, it’s still a bit risky. Exar is entering the highly competitive consumer electronics market, going up against major chip makers such as Texas Instruments and Intersil. Still, iML has a lot to offer.

“We believe however that iML has a differentiated product offering, and has significant traction with tier-1/2 OEMs in the TV/tablet/NB space for the Chinese, Korean, Taiwanese, and Japanese markets, where it competes on power efficiency, BOM/system cost and form factor,” according to Svanberg.

iML also has green products in the pipeline, including power management chips for TVs and smartphones, as well as light sensors for portables, which should help boost Exar’s top line in 2014, he added.

Exar has been aggressively pursuing acquisitions for more than a year to help expand its product line. In January, Exar acquired Stretch Inc., a provider of software configurable processors supporting the video surveillance market, for an undisclosed sum. And in July 2013, it entered the precision analog market with the $29 million acquisition of Cadeka Microcircuits. In February 2013, it acquired the assets of Altior Inc., a provider of hardware and software compression solutions for use in big data applications, for $5 million.

It also announced a reorganization earlier this month, consolidating all of its product lines under the leadership of two executives, including Parviz Ghaffaripour, senior vice president and general manager of component products, in charge of all Exar component IC product lines, as well as Craig Lytle, senior vice president of system solutions, a business unit that combines Stretch’s line of video processing solutions and the Exar’s data compression and security product lines. It also named Robert K. Beachler vice president of corporate marketing and business development.

At the time, DiNardo said that the changes are part of Exar’s “ongoing strategy to cultivate best-in-class product solutions and management leadership, whether internally developed or through acquisitions.”

In its third fiscal quarter of 2014 ended December, Exar recorded revenue of $30.7 million from $34.0 million in the second fiscal quarter and $31.0 million in its third fiscal quarter of 2013. On a non-GAAP basis, gross margin was 49% and non-GAAP net income was $2.0 million, or $0.04 per fully diluted share. On a GAAP basis, gross margin was 42% and net loss was $1.6 million, or $0.03 loss per share.